16th August 2012
On Tuesday, Benjamin Lawsky, superintendent of financial services for New York State, reached an out-of-court settlement with Standard Chartered. The Asia-focused bank agreed to a fine of $340m and to allow monitors and examiners of his choice reporting to the New York State department of financial services to be installed in its New York branch to ensure it is abiding by anti-money laundering legislation. This followed the August 6 order, in which Lawsky found the bank to have hidden an astonishing $250bn worth of illicit transactions for Iran and Iran-based clients
This is a fantastic deal for Standard Chartered but may not be such a good one for the financial system. Why should bankers and banks that commit crimes be offered get-out-of-jail arrangements along these lines? The list of recent out-of-court settlements involving banks and financial institutions in the United States is a long and ignoble one. Here are some edited highlights:
• On April 28th, 2003, New York attorney general Elliott Spitzer agreed to a £1.4bn mass settlement with 10 banks for "fraudulent research reports", "supervisory deficiencies" and subjecting analysts to "inappropriate pressures" relating to the placing of false valuations on dotcom stocks some of which were known internally to be p.o.s. (= "piece of shit"). The banks concerned included Bear Stearns, Credit Suisse, Goldman Sachs, Lehman Brothers, JP Morgan, Merrill Lynch, Morgan Stanley, Citigroup and UBS. A small number of analysts including Henry Blodget (formerly of Merrill Lynch) and Jack Grubman (formerly of Citi) were individually prosecuted.
• Most of the banks that aided and abetted the litany of frauds and sham transactions that enabled to Enron to falsify its financial position settled out of court. The only bankers who were jailed were the ‘NatWest Three', who some believe were used as a scapegoat by RBS to keep its alleged role out of the limelight, and three executives from Merrill Lynch, who were jailed for the "Nigeran Barges" transaction but later had their convictions quashed on appeal.
• On August 29th, 2005, KPMG admitted to criminal wrongdoing over a multi-billion dollar tax fraud in the US and agreed to pay $456m in fines and settlements as part of an agreement with the Department of Justice and the Internal Revenue Service This settlement was reached because the US authorities were concerned that pursuing KPMG in a criminal trial would have destroyed the firm. They did not believe it would be anyone's interests for the ‘Big Four' auditors to become the ‘Big Three'.
• On July 15th, 2010, Goldman Sachs paid $550m to settle the Abacus 2007-AC1 securities fraud complaint brought by the SEC. Goldman had misrepresented the mortgage bond portfolio in the synthetic CDO and, specifically, who had selected it.
• On August 16th, 2010, Barclays paid a $298m fine to settle criminal charges after admitting to surreptitiously processing $500m of transactions with financial institutions in Cuba, Iran, Libya, Myanmar and Sudan in violation of US sanctions. Barclays accepted that staff at its Dorset payment processing centre had doctored international money transfers between 1995 and 2006 to disguise the involvement countries barred from accessing the US financial system.
• On June 12th, 2012, ING paid $619m to settle charges that it falsified financial records to enable countries including Cuba and Iran to bypass US trade sanctions. The fine related to the illegal channeling of $2bn through the US financial system from the early 1990s to 2007 via more than 20,000 transactions on behalf of Cuba and Iran.
• On June 27th 2012, Barclays paid $453m to settle Libor manipulation charges with the CFTC, Department of Justice and Financial Services Authority
The trouble is that, when compared the overall profits of the institutions' concerned, the penalties concerned are miniscule. The fact the fines are not met by corporate executives but born by shareholders and sometimes the firms' insurers, means no one is really held to account. They do little to prompt soul-searching or do not seem to do much to alter behaviour.
In fact, banks tend to regard such out-of-court settlements as the ordinary citizen would a parking fine or speeding tickets – mildly irritating, a public relations blip, but just another cost of doing business.
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